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Euro-Region Recovery May Stay Draghi’s Hand

March 5 (Bloomberg) -- The euro area’s economic recovery strengthened in the final quarter of last year, taking pressure off the European Central Bank to add stimulus when policy makers meet this week.

Gross domestic product rose 0.3 percent in the three months through December from the third quarter, the European Union’s statistics office in Luxembourg said today. That’s in line with Eurostat’s initial estimate published last month. From a year earlier, the economy grew 0.5 percent. Exports boosted growth, the data showed.

ECB President Mario Draghi held out the prospect of further policy easing on Feb. 6, saying the Frankfurt-based central bank needed “to get more information” on the recovery before making any decision. Since then, data on inflation and economic sentiment exceeded estimates, and only a quarter of forecasters in a Bloomberg News survey say the ECB will reduce the benchmark rate from the current record-low 0.25 percent.

“It should give them confidence that the recovery, albeit modest, is still ongoing,” said Nick Matthews, senior European economist at Nomura International Plc in London. “What it will mean is that there are no revisions to the ECB’s forecasts when it publishes the staff projections.”

Exports from the euro area grew 1.2 percent after stagnating in the third quarter, today’s report showed. Imports increased 0.4 percent, down from a 1 percent expansion, and household consumption stayed at 0.1 percent.

‘Positive Signs’

The euro area will record annual growth in 2014 for the first time in three years, according to forecasts by the International Monetary Fund and the ECB, even though high unemployment and weak consumer-price pressure may yet derail the fragile recovery. With inflation less than half the 2 percent level the ECB defines as price stability, Draghi has said he stands “ready to act” to provide more support.

The central bank announces its policy decision tomorrow, along with new projections prepared by staff. It currently forecasts growth of 1.1 percent for this year, while the IMF expects economic expansion of 1 percent.

The ECB “will see the data as broadly positive,” said Azad Zangana, European economist at Schroder Investment Management in London. “There are many positive signs coming through that confidence is returning and that investment is following business activity higher.”

French GDP climbed 0.3 percent in the fourth quarter, while growth in Germany, Europe’s largest economy, accelerated to 0.4 percent after a 0.3 percent expansion in the third quarter. Separately, January retail sales increased 1.6 percent from the previous month, Eurostat said. That beats a median economist estimate of 0.8 percent in a Bloomberg survey.

Slow Momentum

The euro-area economy will expand 0.3 percent each in the first two quarters of this year, according to Bloomberg’s monthly survey of economists.

ECB Governing Council member Gaston Reinesch told Germany’s Boersen-Zeitung in an interview published last week that “hard data” suggested that the euro region’s economic recovery seemed “to be gaining momentum slowly,” even though it is “still moderate and vulnerable.”

Manufacturing output slowed in February, according to a survey of purchasing managers, even as economic confidence unexpectedly rose and German business sentiment reached the highest level in 2 1/2 years. Inflation in the currency bloc held at 0.8 percent so far this year.

Europe’s recovery has yet to reach companies. While Bayerische Motoren Werke AG, Volkswagen AG’s Audi unit and Daimler AG’s Mercedes-Benz brand are all targeting at least a fourth consecutive year of record deliveries in 2014, they’re banking on sales growth abroad to help make up for a stagnant market in their home region.

“There will not be a fast recovery in Europe,” Daimler Chief Executive Officer Dieter Zetsche said yesterday. Even so, there are “positive signals even from southern Europe,” he said.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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